Sharon Zollner
The bank says there have been various indicators published recently suggesting the economic recovery is running out of steam and house prices are not just stagnant, but are actually falling, causing buyer caution.
ANZ chief economist Sharon Zollner says the bank judges the underlying trend to be “ever so slightly upwards”.
Sales volumes have been sitting about their historical average since late last year. They are well up from their low point in 2023 when interest rates were at their cycle peak.
But housing demand has not strengthened enough yet in this cycle to put sales volumes above their historical average, Zollner says.
Indicators of the balance between housing demand and supply continue to point to the market staying fairly steady, with scant evidence of either an acceleration or a loss of momentum.
She says the sales-to-listings ratio is a useful indicator of heat in the housing market and tends to give a three- to six-month lead on house price momentum.
“It has tracked sideways as rising sales have been matched by growing inventories, and points to house prices going sideways for a while yet.”
Rates a burden for property owners
It’s been a wild ride for homeowners since the pandemic, Zollner says.
Those who have owned since before Covid hit are likely to still be sitting on large capital gains, with the median house price up about $180k from 2019.
Those who entered the market about its 2021 peak are likely to not be.
Most homeowners will have seen their running costs increase as inflation pressures hit council rates, insurance, maintenance and interest costs.
Cyclical pressures on council finances look set to ease, but balancing the books looks likely to remain a fraught task for the foreseeable future, and this will keep the pressure on council rates over the medium term.
“There’s a lot more to the decision on whether to buy a house than just the rates bill, but at the margin, it will be putting downward pressure on house prices as prospective buyers and sellers weigh up the costs and benefits of owning a home,” she says.
However, over the past four years, local council rates have increased by 7-12% per year on average across the country, and another large increase is set to happen this year.
Rates rises have not slowed down even though interest costs have dropped and insurance and maintenance costs have, on average, largely stopped increasing.
Rates inflation hit a record high last year, averaging 12.2% across the country.
This came after three years of 7-10% annual increases – well up from the average of 4.7% per year between 1992 and 2019.
Councils have announced an average rates increase of 8.4% for the coming year. At the low end, Auckland and Christchurch City Councils are hiking rates by 5.8% and 6.6% respectively, while at the upper end, Hamilton City Council is putting rates up 15.5%, and Wellington City Council is hiking rates by 12%.
Zollner says rates are a fairly small component of the overall CPI, with a weight of 3.1% (or 3.4% when including water supply charges, billed separately by some councils).
“Still, given the sizable increases announced for this year, we expect rates to contribute a meaningful 0.3%pt to inflation in this quarter.”
Significant (and expensive) issues remain for local councils that somehow need to be paid for over the medium to long term, she says.
These include closing existing budget deficits, catching up with deferred infrastructure maintenance, and making sure local infrastructure is resilient against natural disasters, with the potential impacts of climate change a hot topic.
Underpinning recent inflation in council rates have been strained council finances.
When summing across all 78 local councils, Stats NZ’s Local Authority Statistics show the aggregate local government budget balance last year was a deficit of about 0.4% of GDP in the year to March 2025, or about $850 per household.
“This might not sound large macroeconomically, but is significant relative to councils’ revenues,” Zollner says.
Paying for expanding infrastructure has been a factor putting huge pressure on council rates.
Historically, some of the up-front costs of infrastructure could be funded with debt and then paid for over time (and using debt is fair when future ratepayers will benefit from the infrastructure).
But councils have tended to use a combination of debt and higher rates for infrastructure funding to stop their debt-to-income ratios escalating.
The government and councils are now developing new funding mechanisms to reduce reliance on rates revenue for infrastructure growth and more fairly assign costs to those who benefit, such as by more directly charging developers of new housing areas that use the new infrastructure.
However, Zollner says rolling out these schemes remains a work in progress.
“Although infrastructure spending is a slow-moving beast, the relationship with trend GDP growth is clear. For example, over the 1970s and 1980s councils’ infrastructure investment steadily fell as a share of GDP as the economy languished and people emigrated.
“When trend growth picked up from the mid-1990s, so too did councils’ infrastructure investment,” she says.
Since the mid-2000s it has cycled around 2% of GDP, but trend GDP growth has dipped in the past few years.
“Productivity growth has gradually slowed over the past 20 years; the economy has swung from a cyclical peak in 2022 to a low now; and population growth has slowed as net migration has pulled right back.”
Zollner says lower growth is rarely something to celebrate, but in this instance, it might give councils a small breather on the infrastructure front, as well as some opportunities.
Research by the Infrastructure Commission shows that New Zealand as a whole (not just councils) is especially inefficient at delivering complex, large-scale infrastructure projects compared to other countries.
”Councils that have been sprinting to keep up with growth might be able to use the current slower period to push in the direction of value for money rather than scale of delivery,” she says.
